Chapter 7 Bankruptcy in Alabama: What You Should Know

If debt were a game show, most people in South Alabama would say it feels rigged: the house always wins, the rules keep changing, and the prize for doing everything “right” is another round of minimum payments. You see regular families in Mobile being told to “just budget better” as interest and fees bury them. The truth is that the same system that lets the elites reboot also exists for workers, retirees, and small-business owners who are out of options.

Chapter 7 is not a stunt—it is a lawful process that stops most collection efforts, can clear many unsecured debts, and uses Alabama’s current exemption laws to shield key assets. If you live or run a small business in South Alabama and debt is swallowing every paycheck, Chapter 7 can feel like the only way to breathe again. Below are answers to common questions people ask the best bankruptcy attorney in Alabama.

What is Chapter 7 bankruptcy in Alabama?

Chapter 7 is a federal court process that can wipe out many unsecured debts—like credit cards, medical bills, and personal loans—by placing non-exempt property, if any, under the control of a court-appointed trustee who may sell it to pay creditors. The U.S. Courts describe Chapter 7 as a “liquidation” case, where the trustee gathers non-exempt assets and uses the proceeds to pay claims before most remaining unsecured debts are discharged.

For many individuals and families in Alabama, there are no non-exempt assets for the trustee to sell, so the case is treated as a “no-asset” case and creditors receive nothing. What the debtor receives is a discharge order that permanently stops collection of most unsecured debts.

How does a typical Chapter 7 case work from start to finish?

A Chapter 7 bankruptcy starts when you file:

• A petition
• Schedules listing all debts, income, expenses, and property
• Statements about recent financial activity
  

A trustee is appointed to review your paperwork and conduct a short “meeting of creditors” where you answer questions under oath about your finances. In most consumer cases, the trustee files a report stating there are no assets to distribute, and a discharge order is entered a few months after filing. Throughout this process, your bankruptcy attorney in Mobile prepares the documents, attends the meeting with you, and deals with creditor issues so you are not handling court requirements alone.

Who qualifies for Chapter 7 under the means test?

Most people must pass a means test to use Chapter 7. Federal law compares your household income to Alabama’s median income for a similar family size. If you are below median, you usually qualify. If you are above median, a more detailed formula subtracts “allowed” living expenses and secured-debt payments to see whether you have enough disposable income for a repayment plan in Chapter 13.

Other basic requirements include:

• Completion of a credit-counseling course within 180 days before filing
• No Chapter 7 discharge in the last eight years
• Truthful, complete disclosure of all assets and debts

A bankruptcy lawyer will review your paystubs, tax returns, and budget, then compare Chapter 7 to a tailored Chapter 13 repayment plan if your income or goals make that a better path.

What property can I keep in a Chapter 7 case under Alabama exemptions?

Alabama exemption laws determine what you can keep despite filing for bankruptcy. As of April 1, 2024, Alabama’s updated exemption chart provides:

• Homestead exemption – $18,800 in equity in your primary residence (more for some married filers).
• Personal property exemption – $9,400 in qualifying personal property, which functions as a broad “wildcard” that can be applied to household goods, vehicles, and other essentials.

These amounts adjust periodically for inflation and are applied on a per-debtor basis, which can double protection for married couples filing jointly.

Retirement accounts, certain insurance benefits, and some tools of the trade may receive additional protections under Alabama law. A top-rated bankruptcy attorney in South Alabama uses these exemptions strategically so that a Chapter 7 case provides maximum relief with minimal loss of property.

Secured debts such as mortgages and car loans are also different. Chapter 7 can erase your personal liability, but the lender’s lien stays on the property. If you cannot stay current on payments, the creditor can still foreclose or repossess after the automatic stay ends. That is why a bankruptcy attorney South Alabama will compare Chapter 7 with Chapter 13, which can give you more time to cure arrears.

How does Chapter 7 protect me from foreclosure, repossession, and wage garnishment?

The moment you file a Chapter 7 case, a court order called the automatic stay takes effect. That stay immediately stops most:

• Foreclosure sales
• Vehicle repossessions
• Wage garnishments
• Lawsuits and judgment enforcement
  

The automatic stay halts most collection actions and legal proceedings while the bankruptcy is pending, subject to some exceptions and creditor motions for relief. For homeowners and car-owners in South Alabama, this pause can give crucial time to:

• Decide whether to surrender property and eliminate the debt
• Bring payments current if possible
• Move to a structured Chapter 13 plan if you need years to catch up

Can small-business owners and LLCs in South Alabama use Chapter 7?

Yes. Small businesses in South Alabama use Chapter 7

• Business liquidation. An LLC or corporation that will not continue operating can file Chapter 7; a trustee then liquidates business assets for creditors. Businesses do not receive a discharge, but the bankruptcy wraps up operations through the court.

A South Alabama bankruptcy attorney can walk through tax issues, business-asset valuation, and whether a small business bankruptcy or Chapter 13 might work better if the enterprise is still viable.

How will Chapter 7 affect my credit?

A Chapter 7 case appears on consumer credit reports for up to 10 years, and it is one of the most serious negative marks you can have. That said, federal consumer-finance agencies emphasize that negative information carries less weight as time passes and as you add new, positive history.

What should I do now?

If you are considering Chapter 7 bankruptcy and want clear answers about exemptions, the means test, and how a discharge will affect your home, vehicles, and credit, Hollinger Connor, LLC offers focused representation throughout South Alabama. Call us today to schedule a confidential consultation with bankruptcy lawyers in Mobile, AL who can evaluate whether Chapter 7 or Chapter 13 is the right next step for your financial recovery.